From: US GIO

From: US GIO To: Undisclosed recipients:; Subject: J.P. Morgan Eye on the Market, June II, 2012 Date: Mon, 11 Jun 2012 16:01:08 +0000 Attachments: 06-11-2012_-_EOTM_-_Plan_C.pdf Eye on the Market, June 11, 2012 Topics: What happens when countries and companies have to go for Plan C I hosted a lunch last week for CIOs of endowments, foundations, pension plans and insurance companies. In addition to the problems in Europe, attendees expressed deep concerns about how to meet payout targets at a time of low interest rates. One of the consequences of today's interest rate environment is that a lot of investment funds commit to an annual payout rate of around 5%, which is 4.5% over Libor. Until 2001, a 5% payout rate was generally below Libor. This shift is one of the most remarkable changes in US capital markets in many decades, and has significant implications for any CIO or high net worth investor seeking to match investments and payouts with an acceptable level of portfolio risk. There are no magic-bullet answers to this conundrum, but mezzanine lending and rescue lending can in our view play a partial role in a broader portfolio. Private lenders generally take steps to increase the subordination beneath them, while events in Europe are further subordinating holders of Spanish government bonds. We'll take our chances in the corporate sector; see the attached Eye on the Market for further details. As for the Spanish bailout, recapitalization of banks has historically been a very positive step (see page 1 of attached PDF). However, Spain's private sector is still in tough shape, so Spain may still have to opt for a sovereign rescue package in excess of 300 billion this year or next. The Spanish bank recap reduces immediate banking sector risks, but does not otherwise change the cautious view we have given low growth, inter-regional capital flight and rising debt burdens across the Periphery. The primary benefit of the Spanish bank recap may be reduced financial sector contagion risk to Asia and the US; we'll take it. Michael Cembalest J.P. Morgan Asset Management This email is confidential and subject to important disclaimers and conditions including on offers for the purchase or sale of securities, accuracy and completeness of information, viruses, confidentiality, legal privilege, and legal entity disclaimers, available at http://www.jpmorgan.comMagesedisclosurestemail. EFTA00713469